The route to success has changed!

IIPM, GURGAON

A massive rally rolled out in Guwahati some months back. A door-to-door campaign was launched in the city of Silchar asking people to vote for the “Son of the Soil.” Northeast was united like never before. Everybody was talking about him. Debojit was no political leader, but a finalist of the TV show, Sa Re Ga Ma. Debojit finally won the contest with 2.2 million SMS messages being sent in his favour, of which 1.5 million came from the Northeast!

The fact is that record companies or music companies don’t really decide who will make it big today. Today, with numerous reality shows, contests and programmes on TV, it’s more a war of SMS messages than an appreciation for sur & taal.

The reality talent hunt show Indian Idol changed the fortunes of not just its winner, Abhijeet Sawant, but also of the TV channel Sony. for free, all in the comfort of your home. It couldn’t get better than this. There are file-sharing networks like Napster, eDonkey etc. where you can download music for free.

Would it result in music stores becoming redundant in the future? No one knows, but music companies are sitting up and taking notice of the havoc the internet is capable of doing to their bottom lines. Virgin Megastore was the first to have “listening stations” in its stores to make it possible for the customers to sample the music before buying. Now everybody is following this practice.

With music being so freely available, the hold of music companies on Radio stations is decreasing. If grapevine is to be believed, big companies used to bribe these stations to play more of their music. Today, listeners are moving to the net to hear the music they want, if they don’t get it on the radio. Technology has made it much cheaper to cut an album. So bands are boycotting studios & turning to home studios. The marginal cost of producing copies of the music CD is almost zero.

Artists can also distribute their music on the net. If the songs are popular, listeners ‘will’ download. Not surprising that “Viral music” is the craze among youngsters. Maybe in the future, the internet, and not the music companies, would define music.

Buying patterns have changed

Those were the days when you’d go to a store and buy the whole album. Imagine asking the retailer to sell only one song from the cassette or the CD. The reality today is that no one is interested in buying the whole album anymore. Apple’s data shows that customers buy more singles than the whole album. Some 12 singles were purchased for every one album sold at iTunes, Apple’s online music store. Not just this, the sale of CDs is decreasing. Thanks to ipods and itunes, people prefer to buy music online. The public doesn’t care about labels – but songs. They want instant gratification. If they can get it for free, on the net, they’ll really look no further than their computers.

Music companies are changing

The “big four” internationally – Sony/BMG (the largest music company in the world; turnover $55 billion), Universal, Warner and EMI – are feeling the heat. Their music sales fell by a fifth between 1999 and 2003. Their hold on radio stations has decreased. Artists are now using technology to bypass them. In fact, entertainment is getting a new definition. The shelf space in stores like Walmart is being dedicated more and more to DVDs and video games and less to music CDs. No wonder, CD prices are getting reduced.

The old model of doing business is changing for these companies. They have to rely on overnight hits, and create and churn out artists quickly, and in large numbers – for that’s what teens like. But these teens don’t like buying music when they can get it for free! Thus, putting the music companies in a catch 22 situation.

The stock market is impatient. It can’t wait for them to find a Michael Jackson and nurture him for more stable and long term gains. And this is putting music companies in a soup.

Artists are getting smarter and want a bigger share from the profits. They do not want to give more to the record labels. The managers of groups like Red Hot Chili Peppers, Metallica, and of singers like Shania Twain would do anything to prevent record labels from grabbing any share of “non-recorded income.” This would include sponsorship deals, touring profits, merchandise sales etc; the only “shared revenue” would be CD sales. With revenues shrinking, the marketing clout of these music companies is also losing its lustre and artists are gaining more power. The top Indian recording labels – T-Series, Sony-BMG, and Saregama – are finding their share of the pie shrinking too. Film music success is keeping them happy, but again, a lot of it is being taken by Yash Raj Music.

There is the problem of royalties, which is not very high either. The mobile-phone culture is changing all dynamics. With services like Airtel’s Hello Tunes, it would become easier for users to download the song than to pay for a CD. To top it all, the music industry is not getting its share of revenues for their songs that end up as ringtone downloads. According to industry estimates, nearly two lakh ringtones are downloaded in India everyday; while 60% of the charges for downloading a ringtone is taken by the mobile service provider, only 25% goes to the music companies (and 15% to the government). So while telecom companies are enjoying the extra inflow, the others are sulking.

Music companies have to think hard. If they have to survive, they have to change and evolve. They have to give better artists. They have to make better music. They have to not just market & distribute music, but look into the issue of artistic development too.

They have to change their attitude towards distribution. They have to make friends with their enemies – the internet and the file-sharing networks. Sueing them would not help. The next decade is full of risks. They have to be ready – creatively & technologically, or else, they could very well be singing a new original song... their own swan song.

Copyright © : Rajita Chaudhuri and Planman Media.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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